Martek: Bringing Up Baby

By Gene G. Marcial

Needs Nursing Along
Martek Biosciences (MATK ) is in an enviable spot: scrambling to meet demand -- by tripling capacity of its algae-based nutritional oils for infant formula and dietary supplements. "Martek is a pure play in the fast-growing baby-food market," says Marion Schultheis, managing director at investment firm J&W Seligman, which owns shares. Martek has licensed 14 formula makers that cover the U.S. and most of the world, among them Bristol-Myers Squibb's (BMY ) Mead Johnson unit, Wyeth (WYE ), Abbott Labs (ABT ), Novartis (NVS ), and Nestlé. Schultheis figures major food companies may also want Martek for dairy and cereal products. The oils -- O.K.'d by the Food & Drug Administration and patented -- are polyunsaturated fatty acids, called DHA and ARA, that help develop babies' eyes and central nervous systems and promote adults' mental and cardiovascular health. Martek's shares, at 70 in May, fell to 45 in July, when worries rose that Martek might fail to meet demand. The stock is now at 51, as supplies keep rising. "We are confident new capacity should make supply-driven noise a thing of the past," says Scott Van Winkle of Adams Harkness, who rates the stock a strong buy. In 2003, Martek earned 61 cents a share and should shoot up to $1.12 in 2004 and to $2.40 in 2005, figures Van Winkle. He sees the stock hitting 80 in a year.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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